It was always going to be hard for soybeans futures to hold on to such a heavy premium to corn at this point in the year.
Corn futures rose on Tuesday, as speculators begin to wind up the shorts put in last week, and demand begins to pick up.
And as soybean prices fall, futures of the oilseed are beginning to give back some of that hefty premium to corn which they picked up last Thursday.
Spread falls back from 8-month high
The spread between soybean futures and corn opened up to its widest level since last summer on Thursday, after a US government survey showed farmers favouring corn sowing over soybeans, to a greater extent than markets had expected.
But with the planting season yet to begin across most of the US corn and soybean belt, any farmers who have yet to apply nitrogen will be giving serious thought to switching out some acres to the oilseed, given the price incentive.
“Bottom line there are several weeks before planting is ultimately decided and weather and finances will no doubt play a part in the end results,” said Paul Georgy, at Allendale.
Premium narrows
The front-month corn to soybean spread narrowed since the corn sell-off last Thursday, although still very wide by historical standards.
“Today the market continues to offset some of the corn/soybean spread trading that was put on right after the release of the report,” said Darrell Holaday, of Country Futures.
“Corn is firm today as spreads continue to tighten to accommodate improved demand,” said CHS Hedging.
The closely-watched November soybean to December corn ratio is back below 2.5. This is significant because that ratio is used by farmers to determine whether to plant soybeans or corn, with a ratio above 2.5 considered a strong signal for soybean seedings.
Demand boost
And near-contracts for corn are getting a boost from some tightness in the markets, said Ami Heesch at CHS Hedging.
The premium of July 2016 corn futures to the May 2016 contract is down to just 3 cents a bushel, the lowest since August last year.
“Demand is decent and movement is pretty light,” Ms Heesch noted.
Richard Feltes, at RJ O’Brien, also noted “low farm selling” and “stepped up interest in US corn”.
Brazilian imports
One unexpected demand factor for corn has been the emergence of corn demand from Brazil, a huge net importer.
“Brazil exported record amounts of corn in late 2015 and early 2016 and now in an unusual twist, Brazil needs to import corn to meet the demand of the livestock industry in southern Brazil,” said analyst Dr Michael Cordonnier.
“The corn supplies in southern Brazil are so tight that some domestic corn prices in the state of Sao Paulo have reached as high as R$53 per sack of 60 kilogrammes or approximately US$ 6.50 per bushel,” Dr Cordonnier said.
And with the main second-crop harvest still months away, and concentrated in central Brazil, away from the southern livestock areas, producers have turned to supplies from Argentina and Paraguay.
May corn futures ended up at $3.56 ¾ a bushel, up 0.7% on the day.
May soybean futures finished down 1.0%, at $9.04 ¾ a bushel.
Kansas wheat falls below Chicago price
Another spread to be paying attention to is that between Kansas and Chicago wheat.
The lower-protein Chicago soft red winter wheat contract in Chicago is now trading below Kansas hard red winter wheat, for the first time since February.
In the middle of last month, front-month Kansas wheat futures were trading at a 14-cent-a-bushel premium to the May Chicago contract.
The finished Tuesday at a discount of ¼ cents, after reaching down to a one-and-one-half cent discount.
Dryness still on the table
The weaker tone in Kansas has been driven by an improving weather outlook in the dry US Plains, where most hard red winter wheat is grown.
But Tobin Gorey, of Commonwealth Bank of Australia, warned that although “Kansas remains the weakest” of US grain futures, “weather forecasters still expect only modest rainfall in the driest areas of the US hard red winter wheat region”.
“Weather models keep projecting rainfall at that horizon, only to later erase the rain as time marches toward those dates,” he noted.
“The market might yet downgrade the influence the projections have on their forecasts.”
May Chicago wheat futures finished unchanged on the day, at $4.74 a bushel.
May Kansas wheat finished down 0.2%, at %4.74 ½ a bushel.
Coffee extends losses
Continued weakness in the real weighed on the price of coffee, of which Brazil is the world’s top exporter, with the real down 1.6% against the dollar in afternoon deals.
May arabica coffee futures fell 1.5%, to 120.90 cents a pound, their lowest level since early-March.
And May robusta futures in London settled at $1,457 a tonne, down 1.1% on the day.
Technical support
But raw sugar found some support, after holding on the hundred-day moving average.
May raw sugar settled unchanged at 14.64 cents per cents a pound.
White sugar, meanwhile, saw the front month fall sharply ahead of next week’s expiry.
The March contract trimmed its discount to May to as low as $4.80 a tonne, from $6.60 a tonne.
“With the fund longs still evident the spread and premium could come under further pressure in the coming week,” said Mark Cooper, at Sucden Financial.
May white sugar futures finished down 0.7%, at $4.20.30 a tonne.
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